March 4, 2011 3:04 pm
For the last several months, the publication of non-farm payroll figures has failed to validate other data which have been indicating that the US labour market is really starting to improve. Today, however, has been somewhat different. The rise of 222,000 in the number of private sector jobs, along with upward revisions of 58,000 to previous months’ estimates, has confirmed that the US recovery is at last spreading to the jobs market. Even so, given the fact that this month’s figure has been boosted by weather effects, it feels to me a tad disappointing, and is still out of line with other, stronger, labour market indicators.
The unemployment rate fell again by 0.1 per cent to 8.9 per cent, and this month there was no exaggerated decline in the labour force to flatter the figure. It will still take a very long while before unemployment will return to anything like normal, but at least things now appear to be moving broadly in the right direction.
March 3, 2011 6:47 pm
Today’s hawkish statement from the ECB means that a rise in interest rates from 1 per cent to 1.25 per cent is highly likely to be announced next month. Only a major discontinuity in Europe’s financial markets can now prevent it. The key question is whether this rate increase is just an isolated event, which proves to be mistaken and is therefore rapidly reversed – like the infamous quarter point rise announced by the ECB in July 2008, when the world economy was already in recession. Or does the ECB announcement definitively mark the low point for global policy rates? If so, it will prove to be the first step of the central banks’ “exit” process, and the start of a lengthy period of monetary policy normalisation.
March 1, 2011 8:22 am
The combination of a rapidly growing economy, and a surge in oil prices, has raised questions about the strength of the doves’ hand at the Fed. Previously in firm control, the doves had until yesterday been silent about the recent mixture of strong GDP growth and rising headline inflation. Was the case for exceptionally easy monetary policy beginning to fray at the edges? Not in the mind of New York Fed President Bill Dudley, who is among the most eloquent spokespersons for the dovish standpoint.
In an important speech, Bill Dudley confirmed that the US economy is now growing at an accelerating rate, but said that this reflected the success of Fed policy, rather than providing any case for changing it. He conceded that the structural unemployment rate may have risen to between 6 and 7 per cent, but argued that much of this increase may be temporary. And, in any event, he suggested that employment could rise by 300,000 per month for two years before the economy would run out of spare capacity. On the commodity price surge, he said that this would not be a sufficient reason for tightening monetary policy, unless it started to increase inflation expectations. Assuming this does not happen, Bill Dudley will remain an influential dove for a long time. And this is important, because his recent thinking has been very close to that of US Federal Reserve chairman Ben Bernanke himself.
February 27, 2011 1:03 pm
This week, the political upheaval in the Middle East spread to Libya, and therefore really began to hit the the oil market for the first time. Oil prices briefly hit levels which were 50 per cent above the average levels of last summer – which, if maintained, would represent a medium sized oil shock. Yet global equities suffered nothing more than a minor dent, and global bonds rallied markedly.
Elsewhere, the US Congress failed to make progress towards an agreement on raising the public debt ceiling. A permanent stand-off in Congress may be only a remote prospect, but it would be a catastrophic event for the world economy if it happened.
February 25, 2011 12:37 pm
When the first estimate of UK GDP in 2010 Q4 showed a fall of 0.5 per cent, I commented in this blog that this news was “too bad to be true”. The second estimate for Q4 came out this morning and, sure enough, the figures were – worse. Undaunted, I am still strongly of the view that this depressing quarter does not give an accurate reading on the true state of the UK economy at present. Most other information points to a continuation of reasonably healthy growth in recent months, and a strong bounce-back in the official GDP number is still to be expected in Q1.
February 24, 2011 6:55 am
Each of the last five major downturns in global economic activity has been immediately preceded by a major spike in oil prices. Sometimes (e.g. in the 1970s and in 1990), the surge in oil prices has been due to supply restrictions, triggered by Opec or by war in the Middle East. Other times (e.g. in 2008), it has been due to rapid growth in the demand for oil.
But in both cases the contractionary effects of higher energy prices have eventually proven too much for the world economy to shrug off. With the global average price of oil having moved above $100 per barrel in recent days – about 33 per cent higher than the price last summer – it is natural to fear that this latest oil shock may be enough to kill the global economic recovery. But oil prices would have to rise much further, and persist for much longer, for these fears to be justified.
February 20, 2011 12:18 pm
Apart from the continuing political instability in the Middle East, the most important macro events of the week were focused on inflation. We have known for a while that headline inflation is now rising, especially in the emerging world, because of the increases in food and energy prices. Now it appears that core inflation is also rising, despite the very large output gaps in most developed economies. Central bankers are now seriously split on whether to tighten policy, but the majority view still seems to be dovish.
February 18, 2011 12:04 pm
The US unemployment rate has dropped from 9.8 per cent to 9.0 per cent in the last two months, and there have been signs that private sector employment may soon be rising at about 200,000 per month. Admittedly, this improvement is still a very minor one compared to the massive deterioration in employment which occurred in 2008-09, when 8.5 m jobs were lost in the economy. But at least the change is now in the right direction. (See this earlier blog.)
With the labour market beginning to improve, some members of the FOMC are contemplating an early tightening in monetary policy. Indeed, the markets now expect the Fed to raise short term interest rates by 1 per cent in the next 18 months. If this goes much further, it could undermine the strength of risk assets, and possibly also of the economy itself. So it is crucial to ask whether there really is a genuine case for the Fed to become concerned about the tightening of the labour market.
February 15, 2011 2:15 pm
China’s GDP growth made news this week because, on the official figures, China overtook Japan to become the second largest economy in the world in 2010. But actually, on a different way of calculating the data, this was very old news. Using purchasing power parity, China not only overtook Japan way back in 2001, but it is also quite close to overtaking the US as the biggest economy in the world – if, indeed, it has not done so already.
GDP statistics measure the amount of value added or income in the economy, measured in domestic currencies, over a given period of time. But it is more difficult to compare the GDP in one economy (China) with that in another economy (Japan), because we need to use an exchange rate which translates yuan into yen or vice versa. This is not as straightforward as it may seem.
February 13, 2011 11:55 am
This week in global macro, the emerging markets reminded us that they are, well, emerging markets. The Egyptian crisis may have moved towards resolution, but there are risks of contagion elsewhere in the region. India continues to be the worst performing stock market of the year, and China is slowing under the weight of tightening monetary policy.
Developed equity markets continue to out-perform, although headline inflation is rising, notably in the UK. Although many people are claiming that the Bank of England is losing credibility, that is not yet showing in the gilt market. In the US, there were some signs of greater hawkishness from certain members of the FOMC, but none where it really counts – which is in the minds of Ben Bernanke and his senior lieutenants. The US equity market ended the week at its highest level since June 2008.
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A blog on macroeconomics, economic policymaking and the financial markets.
